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The solution for effective

credit and collections


management
FSCM – Credit and Collections

INDEX Executive Summary

Executive Summary 1 Many finance departments in the present market struggle


Why implement FSCM C&C in your organisation? 2 with their role in the organisation. Market conditions
What needs to be done before FSCM C&C can change rapidly therefore they want to play a more
be implemented in your organisation? 4 strategic role and spend less time with high labour
What can FSCM ECC 6.0 C&C do in intensive processes. Core financial processes are
comparison with R/3? 4 automated whereas other important financial processes
What is needed from a system landscape perspective? 5 are still very labour intensive and costly. The financial
Some business implementation considerations manager of today wants to optimize his department’s
per FSCM C&C module/ Best Practice 7 performance and do more for less cost. Nowadays
Limitations of FSCM C&C 8 improving cash flow is one of the most important key
focus points

FIGURES SAP has developed FSCM to assist with this focus by


optimizing the financial and information flows within
Figure 1: FCSM Credit and Collections focus 2 a company and between business partners. It delivers an
Figure 2: System Scenario’s 5 integrated approach to present business environment
challenges.

Using SAP FSCM, companies can optimize their cash


management, reduce the cost of invoicing, simplify
accounts payable and accounts receivable, and lower the
costs that occur through reconciliation or mistakes. SAP
FSCM contains solutions for displaying accounts and
invoices, paying over the Internet (SAP Biller Direct),
efficient processing of disputes and withheld payments
(SAP Dispute Management), managing credit default risks
(SAP Credit Management), and an effective approach to
collecting your receivables (Collections Management)

Before implementing SAP FSCM a closer look has to be


taken at the current business in order to assure an
effective set up of the modules to be implemented.
This White paper will explain the process and business
questions to implement FSCM to enhance your
organization to the fullest.

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 1


Why implement FSCM C&C integrated approach to present business challenges.
in your organisation? SAP FCSM helps streamline your order to cash and invoice
to pay process, reducing operating cost, increase faster
Deteriorating markets causing an increase in overdue collections, and enhance cash flow forecasting. At the
receivables, more hours spent on logging and tracking same time it comes with a repository of ‘standard build-in’
disputes, too much cash tied up, increasing DSO. All integration objects for a variety of (external) data sources
indicators that it’s time to evaluate your receivable and processing systems frequently used in the market.
management and strategy. For many companies a financial These range from payment systems to credit rating
supply chain involves a highly paper based, off line agencies. Via process and system integration you can
process where split information flows restrain payment enhance your performance, data processing and deliver
flows and thus tie up large amounts of cash in your information faster with less (human) effort.
organization. So what is the effect of all this? In short;
increased risks, deteriorating cash flows and rising Another great area of interest at redesigning your
operating cost. financial supply chain is getting your teams responsibilities
organized such that workload is ‘spread’ effectively.
Do you want to control, evaluate and manage credit This will assist in determining the correct focus for the
and collections risks effectively? SAP FSCM optimizes the right people so that priorities are clear.
financial and information flows within a company and
between business partners and banks. It delivers an The FSCM C&C modules in short will bring you:

Financial Supply Chain Management

COLLECTIONS
CREDIT MANAGEMENT BILLER MANAGEMENT DISPUTE MANAGEMENT MANAGEMENT

Finance
Cash Market Risk Credit Risk Dispute
Working Invoicing Collection Payments
Projection Management Management Cases
Capital

CASH & LIQUIDITY TREASURY & RISK


MANAGEMENT MANAGEMENT INHOUSE CASH

Figure 1: FCSM Credit and Collections focus

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 2


FSCM-Credit Management will take you one step processes related to FCSM vs. the current SAP
further to being ‘in control’ by: configuration and identify areas of improvements
• Improved decisions support (‘Gap analysis’). The quick scan will concentrate on the
• Control your customer’s credit exposure with following areas:
up-to-date credit-profiles
• Integration of dispute and dunning information • Current Account Receivables and associated processes
• Integration with Logistical Processes
FSCM-Biller Direct supports your B2C business by: • Organization specific strategy & policies
• Invoicing your business • Country specific legal requirements
• Electronic payment for customers via a portal • Demographical factors such as:
• Integrated approach between customer service - Current Market
and finance - Diversity in Customers
- Country specific characteristics
FSCM-Dispute Management reduces a - Etc.
companies DSO by:
• Early detection of payment issues and disputes The outcome will reveal strength and weaknesses in your
• Increase cash forecast accuracy credit & collections management and strategy as well
• Effective & timely dispute resolution process as improvement options to enhance your organisation.
Findings will be classified as follows:
FSCM-Collections Management effectively • High priorities and have a big business impact.
manages receivables: • Medium priorities and have a medium business impact.
• Use of work list to distribute and prioritize cash • Low priorities and have a low business impact.
collection
• Proactive collection strategy The findings will be reported, followed by
• Dynamic and real time collection management recommendations on which FSCM components to set
up and what the implementation timeline will be. This
With SAP’s FSCM workflow the staff involved (across then will be the basis for the FSCM implementation.
companies) collaborate on issues - through SAP - in a
structured way, shorter communication lines leaving less What can FSCM ECC 6.0 C&C do in
room for errors. On top of that your staff will have their comparison with R/3?
own dash-board, where all information specific to their
role is kept up-to-date and prioritized. The effect is Credit Limits
that you can do more with less staff and/or increase the First of all when switching on SAP FSCM Credit
productivity of your staff. Management the Credit Management function in R/3 will
be disabled and there is no need to maintain any more.
What needs to be done before Credit limits can be transferred or re-entered.
FSCM C&C can be implemented in
your organisation? The functionality of credit limits is already part of SAP for
a long time. R/3 allows credit limits set up per customer
The objective for credit & collections management is to for blocking of sales orders, deliveries etc. Assigning limits
guarantee that customer payments are collected and to customer groups instead of individual customers. Work
processed quickly to supply a constant flow of cash into with risk classes to control credit checks.
the business. Before an FSCM implementation can be
started at your company, your business processes need FSCM in comparison to R/3 provides the opportunity to
to be analyzed first and important company and policy calculate a scoring rule per customer based on predefined
strategic decisions need to be taken. parameters. This includes e.g. payment history and sales
The basis for efficient SAP FSCM system is a well history whereby the system facilitates external information
functioning SAP ECC system. A quick scan therefore (from e.g. a credit rating agency) to be uploaded in order
needs to be performed to review the current key business to be part of the scoring rule determination. If a credit

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 3


limit hierarchy applies then changes due to this upload will master data between SAP Financial Accounting and
be automatically calculated to all levels of the hierarchy. FSCM. Configuration setting needs to be made for this.
In conjunction with other systems specific synchronisation
Dispute cases solutions need to be developed.
From R/3 4.7 the dispute option was already available in
multiple areas of Accounts Receivables Accounting. Next to the above for connection of SAP Credit
E.g. post residual item with incoming payment, line item management to the mentioned systems NetWeaver
display, account clearing etc. From there, when applicable, technology SAP PI (Process Integration) is needed.
dispute cases could be created. With FSCM 6.0, this is
fully integrated with the Accounts Receivables processes Biller Direct is developed in a “Java Environment” hence
for processing of payments, lockboxes or checks and Java resources are needed when setting up this module.
automatic creation of dispute cases.

Secondly a direct connection exists between dispute


management and collections management as part of the
collection strategy. Dispute cases created are automatically
updated when payment, offsetting credit memo or manual ONE SYSTEM SCENARIO
clearing is processed. The update is then visible in the
dispute cases. In CRM dispute cases are also viewable but
since it’s Account Receivable driven changes can only be
made from there.

Thirdly workflow integration is possible between involved


departments in resolving a dispute case.

Biller Direct
This application is new and provides the possibility for
customers to manage their open items and create dispute
cases from the web portal. This portal also allows your
staff and customers to work together more closely
in order to resolve disputes using the same channel of MULTIPLE SYSTEM SCENARIO

communication.

What is needed from a system


landscape perspective?
In order to operate FSCM 6.0 efficiently, ideally is that
your company runs its business on mySAP2005. A
connection to My SAP ERP 2004 (ECC 5.0), SAP R/3
Enterprise, SAP R/3 4.6C or other external systems is
possible. This however requires strong involvement of
ABAP support. RFC connections will have to be set up
which involves extensive testing.

FSCM as functionality heavily relies on “business


* SAP Collections Management and SAP Dispute Management
partners”. The basis for a business partner resides in the have to be set up on the same system if both are used

customer master, within Financial Accounting-Accounts


Receivable. Therefore ECC 6.0 includes CVI (Customer
Vendor Integration) which controls synchronization of Figure 2: System Scenario’s

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How does process integration with SAP There is also a possibility that residual items be converted
ECC or other FCSM modules work? to dispute cases manually or automatically when
processing your bank statements. Amount limits,
FSCM in general customers and discrepancy reasons can be controlled.
FSCM works with the concept of “business partners”
These can be directly maintained within FSCM. However Collections Management
most companies prefer the customer master as the leading Collections Management is closely integrated with
master record for the business partner. Any additional Accounts Receivable. The automatic creation of work lists
roles then are created within FSCM. Master Data needs to and the collection strategy determined for collections
be transferred upon creation or synchronized in case of specialists prioritizes the customers to be contacted and
changes. open items to be addressed.

Credit Management
Credit Management determines when a customer order Some business implementation
or customer account needs to be blocked based on your considerations per FSCM C&C
settings and calculations. Hence Credit Management module/ Best Practice
integrates directly with modules like Account Receivables,
Sales & Distribution and CRM. The communication Credit Management in AR vs. Credit
platform for this is NetWeaver PI. Connection to non Management in FSCM
SAP systems is possible (e.g. credit agency systems). For For companies that have a distributed landscape the
reporting a connection to BI and the “credit manager option of choosing for Credit Management in FSCM is a
portal” are available. favourable one since only in FSCM you can gather and
process information of a business partners credit exposure
Credit Management communicates directly with from various SAP and non SAP sources. This is then
Collections Management when defining a risk class of a consolidated by FSCM and reflected in a risk score for
specific business partner. When a risk class changes, your central processing and monitoring.
collections strategy will take this into account. The relation
between credit limits utilization and credit exposure can Thorough Credit Decisions have to be taken first
also be part of your collection strategy. In order to properly evaluate the creditworthiness of cus-
tomers by the use of internal rating policies and external
Biller Direct credit data to support quick and consistent credit decisi-
SAP Biller Direct is integrated with SAP Dispute ons, the organization needs to determine the rules
Management. From Biller Direct customers can create between not shipping and taking a risk. In short what
dispute cases themselves for e.g. invoice errors or partial drives a credit score in FSCM?
payments. Customers can also view the status of a dispute
case, enter reason codes, up or download attachments Do you want credit limit usage, sales history, payment his-
and communicate on time with the respective department tory, external credit information part of a scoring rule?
that handles the dispute case. Allowing generous payment conditions for “low risk” cus-
tomers or advance payments for “high risk” customers.
Dispute Management What drives a score for a specific customer or group of
SAP Dispute Management is fully integrated with Account customers?
Receivable and allows creating or updating a dispute case
from an open item. The usage of internal and external hierarchies to imple-
ment different credit policies has also changed from the
Incoming payments, credit memo clearing and other SAP R/3 functionality. The top node hierarchy can now
clearing transactions connected to a dispute cases determine how credit limits need to be divided over the
automatically update the dispute case. lower levels. Individual overspent without exceeding the
top node credit limits can also be configured.

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The use of Electronic Banking System (EBS) addition to these statistics, reporting can be done on the
It’s clear for everybody that there are great benefits for frequency of missing information from your customer.
companies by knowing their cash position at their bank as
timely as possible. Using the electronic bank statement
functionality (EBS), companies can reconcile business Limitations of FSCM C&C
transactions in real time with transactions that have been
posted at their bank. However, often few companies really With every new system a few side remarks have to be
fully utilize the full functionality and benefits of their EBS. made. The FSCM C&C modules contain basic set up by
SAP where functionality can be enhanced by implementing
In order to benefit from EBS all transactions both incoming standard delivered business add-ins (Badi). The main
and outgoing have to be analyzed for a specific period of reason is that the strategies that need to be determined
time. Even with the most sophisticated cash-management are company specific, hence requirements can differ a lot.
strategy, transactions in EBS can fail or post incorrectly It’s extremely important that you define your credit and
for many reasons, requiring manual post processing collections policy and strategy well in order to get the
transactions after initial upload of EBS. A well configured most out of FSCM.
set up is therefore crucial. Working with e.g. search strings
can increase the hit rate.

The advantage is that multiple bank statements can be


uploaded at the same time decreasing processing time
and increase timeliness of up to date receivable positions.
This will increase the effectiveness of FSCM.

Effective resolution of Invoice disputes


Invoice problems and overdue payments can happen
regardless of how effectively your have implemented your Meet the
credit management. These all contribute to an increase experts
of DSO affecting your cash flow significantly. In order to
process these disputes quickly and efficiently finance
employees need to gather a lot of information from
different department and have frequent contact with
the customer. All these communication lines are time
consuming and even more important information gathered
is often not logged in a structured and consist manner
so that all parties involved can easily access important
information.

To increase efficiency with handling and processing PROXYON BV


dispute cases a few best practises are to be considered Groot Zonneoord Estate
for implementation: Zonneoordlaan 17
NL-6718 TK EDE
Dispute cases can be created automatically. When using P.O. Box 305
the EBS function for processing payments the system can NL-6710 BH EDE
automatically create dispute cases based on a pre defined The Netherlands
set of rules.
T +31 (0)318 65 77 90
Control your external correspondence function. This F +31 (0)318 65 77 91
function allows you to attach missing invoices, delivery info@proxyon.com
documents etc. and fax or e-mail it to your customer. In www.proxyon.com

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 6